A seminar paper on

Corporate Governance

By

Sumitra Kafle

Bhawana Thapa

Puspa Malla

Malati Bhatt

Shradda Sharma

First Semester, Batch V (2018)

Department of MBM

Nepal Commerce Campus

Tribhuwan University

'Emerging Concept of Management'

1. Introduction

2. Objective and Importance of Good Corporate Governance

3. Conditions of Corporate Governance in Nepal

4. Problem and Solutions in Implementation of Corporate

Governance

5. Best Practices for Corporate governance in an Organization

6. Conclusion
 CORPORATE GOVERNANCE

Abstract

Corporate governance and financial performance is the recent subject to be considered

by academician, practitioners, policy makers and regulatory bodies. The word

governance relates with government. Simply the government is the body which has an

executive authority over the overall management of nation’s activities. It is normally

taken as the public concern which protect human values and rights; implementation of

laws in a discriminatory manner; an effective, impartial and quick judicial system;

transparent, public agencies and official decision making

Literally, corporate means the entitled association of people authorized and run for

achievement of predetermined goal. And governance stands as way in which company

or person or group is governed and to what purpose.

It, in companies or corporate level, is defined as processes through which a

company’s objectives are set and pursued in the context of the social, regulatory and

market environment. It is concerned with practices and procedures for trying to make

sure that a company is run in such a way that it achieves its objectives, while ensuring

that stakeholders can have confidence that their trust in that company is well founded.

Corporate governance refers to the structures and processes for the direction and

control of companies. Corporate governance involves a set of relationships between

company’s management, its board, its shareholders and other stakeholders. Corporate

governance also provides the structure through which the objectives of the company

are set, and the means of attaining those objectives and monitoring performance are

determined.

So, governance refers to the way of leading or ruling people by their leaders in state

or nation. This is a mechanism to enable stakeholders to exercise control over insiders

and management to protect their interest. Further, this can be said as a process by
which companies are directed and controlled in efficient way that, in long term, put

organization in market leadership position.

Objective and Importance of Good Corporate

Governance

The study of corporate governance issues is very important to different sectors of the

economy. It generally ensures good business. Good corporate governance is a heart of

an organization without which organization cannot run for long time. The life of an

organization always depends on its way of governance. Good governance can satisfy

its customers, employees, government, regulator, supplier, distributor, media,

investors etc by which organization can run for long term. It has at least following

objectives and importance:

 Protection of shareholder interests

 Commitment to values and ethical conduct of business

 Encourage for long run benefit which must be fair

 Effective monitoring and control

Nepal experienced very short history of corporate development. Very few industries

and institutions were established before the establishment of democracy in the

country. Nepal adopted liberalized economic policy in 1980’s, which gives some

fruitful environment to business sector. After that some new avenues were seen in the

areas of banking, airlines, insurance, hotel dairy, pharmaceuticals, education and

health and so on. Private sector business has been increasing with large and qualities

also increased to some extent.

But financial sector stability can be challenged with the diversified product of banking

institution itself and with the development of modern technology. Some companies

were closed within short period after their establishment such as NECON air without

disclosing adequate reason. After that some problems were noticed in banking sector

by the CBPASS audit in banking audit. Major state owned commercial banks were

financially insolvent and those banks were reformed with effort of central bank and

Nepal Government. But still some small banks and financial institutions are seen in

problem situation so that regulator needs to control the institutions.

It is generally believed that the poor corporate governance is one of the major causes
of the problem situation in any organization. There are number of conflict issues in

BOD and annual general meeting, increased number of cases. There are around 40-50

legislation related to CORPORATE GOVERNANCE framework in Nepalese context.

Among them more applicable are Company Act, 2063, Bank and Financial

Institutions Act, 2063, NRB Directives to BFIs, Insurance Board Directives to

Insurance Companies, Securities Registration and Issuance Rules, 2065 for listed

companies in NEPSE. Some other rules are related to public good governance

focused. Some of them are Good Governance Act, 2064, (susasanain) Anti-Corruption

Act, 2059, (BhrastrachanrNibaranAin). Other related institutions for corporate

governance are Transparency International, Nepal chapter, Commission for

Investigation of Abuse of Authority (CIAA), National Vigilance Center

(RastryaSatarkata Kendra), Hello SarkarKaryakram.

The government has signed a contract with the Asian Development Bank to

implement a Financial and Corporate Governance Project. Modernization of NEPSE

would allow it to facilitate low cost and efficient transactions. Accounting and

Auditing Standards are converging towards international best practices with the

progress in the activities of Accounting Standards 11 Board and Auditing Standards

Board under the umbrella of the Institute of Chartered Accountant, Nepal, Act.

Good governance in Nepal requires joint effort of investors, shareholders and

accountable, shareholders should prevent fraudulent and insider practices by

participating actively in corporate affairs, and regulatory authority should enforce

rules and regulations in order to protect the rights of all stakeholders and create

favorable environment to enhance good corporate governance culture.

Problem and and Solutions on Implementation of

Corporate Governance

Corporate Governance is most often viewed as both the structure and relationships

which determine corporate direction and performance. Good corporate governance is

a goal and precondition for positive development. Corporate Governance describes

the relationship and rules that governs the relationship between companies’

management, its stakeholders, regulators and other stakeholders. It characterizes the

structure, framework and processes of all economic measure. CG depends on legal

and non legal principles and practices affecting control of publicly held business

corporations.

In operating the activities in business different problems occur. Poor corporate

governance is often the ground reasons for bad business performance. A systemic
failure of corporate governance means the failure of the whole set of regulatory,

market, stakeholder and internal governance, which has largely contributed to the on-

going financial crisis in particular organization.

Some of the problems that occur in implementation of corporate governance related to

regulatory, market governance, stakeholders, and internal governance are as follows:

 Conflict among the managers and shareholders that affect the firm’s

performance

 Corruption, business ethics and nepotism problem within an

organization.

 Problems of accounting disclosure and transparency reporting.

 Independent, fairness and discipline

 Generally companies break the rules often because of lack of necessary

knowledge and awareness

Some of the solutions for effective implementation of corporate governance in

organizations are as follows:

 Adequate disclosure and transparency for effective decision making

 Clarify the authority, responsibility and accountability

 Restructuring to improve efficiency and effectives of entity

environment

 To be effective include CG training and education have to include not only the

directors and senior management but also should include shareholders and

regulators.

 Reduction of corruption activities and nepotism practices

Sound corporate governance is essential for maintaining investor’s confidence,

guide organization to achieve its target and also support to make good

performance to solve problems of corporate misconduct and behave. Thus,

corporate governance and financial performance are affected by internal such as

officers, stakeholders, condition of a corporation as well as external factor clients,

government regulations etc. affecting the firms.

Best Practices for Corporate Governance in an

Organization

Corporate governance is generally a matter of law based on corporate legislation,

securities laws and policies, and decisions of the courts and securities regulators.

Generally, directors owe a duty of loyalty to the companies they serve, and have a
fiduciary duty to act honestly, in good faith and in the company’s best interests. The

objective of corporate governance is to promote strong, viable competitive

corporations accountable to stakeholders. Proponents of corporate governance say

there’s a direct correlation between good corporate governance practices and long-

term shareholder value.

Right-sized governance practices will positively impact long-term corporate

performance – but companies must design and implement those that both comply with

legal requirements and meet their particular needs. Here are the top 5 corporate

governance best practices that every Board of Directors can engage – and that will

benefit the organization.

1) Create a diversified Board of Directors with a wide range of

expertise, and evaluate their efforts .

Boards should include members with diverse backgrounds and skill sets. Board

members should hold each other accountable for giving board duties adequate

time to thoughtfully address important matters and decisions. The board should

continually work to develop its members’ knowledge in the area of corporate

governance. Boards should collaborate with management, using their expertise to

broaden perspectives and analyze decision-making. The board should do self-

2) Define Roles, Responsibilities, and A ccountabilities.

Corporate bylaws should include descriptions, duties, and responsibilities

of the key roles including board member, chairperson, CEO, and executive

officers. The bylaws should clearly outline the responsibility and

accountability for each position. Audit, compensation, and certain other

responsibilities should be managed by committees. Board members should

carefully review management’s reports and perspectives and be willing to

expand the scope of discussions with the knowledge and expertise of a

qualified, diverse board.

3) Emphasize Integrity and Ethical Dealing.

Not only must directors declare conflicts of interest and refrain from voting on

matters in which they have an interest, but a general culture of integrity in business

dealing and of respect and compliance with laws and policies without fear of

recrimination is critical.
4) Tie Compensation to Performance.

There is a fine balance between establishing directors’ fees that are high enough to

recruit qualified members and setting it low enough that the directors will be

challenged to perform their very best. Performance goals for all members should be

specific and measurable so that their performance can be measured. A separate

committee should oversee all executive compensation plans and be given

responsibility for tying compensation to performance.

5) Board Members should actively work towards Effective Risk

Management.

Board members should accept feedback from management teams about the amount of

risk the company can tolerate. Potential risk should be carefully weighed with the

potential return on investment. They should also build an internal framework that

flags existing and potential risks.

Corporate governance refers to the structures and processes for the direction and

control of companies that also involves a set of relationships between company’s

management, its board, its shareholders and other stakeholders.

Despite having some detrimental aspects, advantages of corporate governance

overcast cons of it. Shareholders interest protection, ethical conduct of business,

effective monitoring and control of resources are importance of good governance. In

addition, transparency, clarity in authorities, responsibilities, timely execution of task

are some major keys of good governance.

The art of good governance is having sufficient processes in place to prevent

malfeasance, whilst encouraging effective growth and innovation to achieve the

strategic objectives of corporation. Sound corporate governance is essential for

maintaining investor’s confidence, guide organization to achieve its target and also

support to make good performance to solve problems of corporate misconduct and

behave

In this paper we have suggested major practices that a BOD can engage in to

promote corporate governance, for instance, diverse board of directors, defined roles

and responsibilities, tie compensation to performance etc. Although, implication side

to be compulsion of every organization to maintain effective governance in and

outside to nail their organizational goal.

Library of Nepal Commerce Campus

Articles of NCC journal

Online sites

Quora.com

Entrepreneur.com

Managementhelp.com

Mcinnescooper.com

Boardeffect.com